The ECB can afford to raise euro zone rates towards neutral levels now that economic recovery looks solid enough, the OECD said today.
In an update to forecasts it made on May 23rd, the OECD raised its 2006 economic growth prediction sharply for the euro zone to 2.7 per cent from the 2.2 per cent it had previously expected.
"In the euro area, the recovery now seems sufficiently robust for a return towards a neutral monetary stance, but gradually so, since unit labour costs remain well in check," the OECD said in the statement on the GDP updates.
Earlier this year, the OECD and the International Monetary Fund urged the ECB to hold off on rate rises until it had hard evidence on growth in the first half of 2006, evidence that has now come to light and shown GDP surprisingly strong.
For the United States, the OECD stuck to its May 23 forecast of 3.6 per cent growth in 2006. It predicted quarter-on-quarter growth of 0.9 per cent in the third quarter and 0.7 per cent in the fourth, after 1.4 per cent in the first and 0.7 per cent in the second.